How Employers Can Legally Strip Your Job Of Benefits

Last week, the entire editorial staff of Out magazine, the most-read gay monthly in the U.S., was laid off. They were told to finish up the week, pack up their desks, walk away with a month's severance, and then wait for a call. Some would be rehired at the magazine, as part of an outsourced operation, but as freelancers -- without benefits and probably with a salary cut.

"Everyone was stunned," said one of the laid-off employees, who would only speak anonymously, since his severance is at stake. It was so sudden, he said, that many of the staffers will have to accept the offer to work at this new company, Grand Editorial, even if they don't want to. A month isn't a whole lot of time to find a new job.

Out is an especially dramatic example of a larger trend throughout America. While many think of outsourcing as American companies shedding workers and replacing them with low-cost temps abroad, employers are increasingly outsourcing at home. Across many industries, American companies have been laying off employees and then rehiring them as "independent contractors" to do pretty much the same job.

Big Pharma, under pressure to cut costs, was a pioneer in this less-than-noble trend. Merck, one of the largest pharmaceutical companies in the world, for instance, sold a Philadelphia factory in 2008, and then contracted with the company that bought it to continue making antibiotics for them with the exact same 400 employees. In 2009, the Arizona PR firm LP&G fired 88 percent of its staff, and then rehired them as freelancers, allowing them to take their desks and computers on the way out.

Out's editor-in-chief, Aaron Hicklin, who will preside over Grand Editorial, admits the outsourcing will cut costs, but he argues that it's also in the workers' best interests. They'll find it more fulfilling, he says, to work out of a more intimate "creative lab space" in Brooklyn, where they'll be "partners as opposed to being employees."

As freelancers, Out's staff will be able to make their own hours, work from home, take on different projects, and get rewards for bringing in clients. One day, he says, they might even get a profit share. The team will be more "nimble" with more time to "play." More of "a team" and more "autonomous" at the same time.

"It's finding ways to motivate good people to do good things," Hicklin explains, "as opposed to pouring cement into a template."

"The way that they're spinning it as a positive is such a joke," said a laid-off employee.

Perfectly Legal Way To Cut Costs

Freelancers don't get that glittering array of labor protections that workers have enjoyed since the New Deal and the civil rights era. No health and unemployment insurance. No pensions. You can be denied work because you're black, or a woman, or Buddhist, with no recourse.

Firing full-time employees and rehiring them as freelancers is completely legal, as long as the person's job description changes enough. There is no hard and fast rule for what defines a freelancer versus an employee; the Department of Labor judges it on a case-by-case basis. Usually if a business depends significantly on the freelancer's work over a long period of time, that person is strolling into employee territory.

In the media world, that line is often blurred. MTV's army of freelancers are often dubbed "permalancers," because they've been working for the company full-time for so long. At last count, a third of U.S. workers were freelancers. It's a shift in the job market as seismic as the Industrial Revolution, according to SaraHorowitz, the founder of the Freelancers Union.

We Need A New, New Deal

Hicklin does regret that everyone will be losing their benefits, including himself. "I hope that will change very soon," he said. "It's not me trying to screw people, it's me trying to be realistic about a small company. "

He hopes his employees will be able to find coverage. Hicklin is British, and "horrified" that we "live in a country where Obama couldn't pass universal healthcare."

Freelancers also have minimal protections when they don't get paid. Last year, 44 percent had trouble collecting the money that they were owed, according to a survey by the Freelancer's Union. The 135,000-member organization even launched a campaign last week on Twitter for the "stiffed" to speak out.

"I once assumed a millionaire wouldn't stiff us on a $250 invoice. I was wrong. #GetPaidNotPlayed"

Out doesn't have the cleanest slate when it comes to paying its contractors. In April 2010, a photo production company wrote a letter to Hicklin, saying that it's "been quite patient with regard to Out's financial difficulties," but it really needed the $35,000 it was owed.Here Media's group publisher Joe Laundry declined to comment on such allegations, but he said Out is profitable.

Shaky Finances Behind The Decision?

Like many media companies, though, Here Media was badly battered by the recession. Since 2009, Here Media has shuttered four magazines and took The Advocate, the country's oldest continuously running lesbian, gay, bisexual and transgender magazine, off newsstands, and turned it into a supplement for Out, it's trendier and less angry younger sister. The company made its publishing house, Alyson Books, e-book only, leaving 12 authors under contract in a lurch. It slashed its workforce by almost a quarter and closed down some offices.

PlanetOut, the company which originally owned Out, The Advocate, and a bunch of other titles, was the first all-queer company on the stock exchange in 2000. At the end of 2004, it was trading at $136 a share. In 2009, it merged with Here Media, and dropped out of NASDAQ with a departing share value of 38 cents.

Here Media hasn't handled these struggles particularly gracefully. In 2010, it threatened to sue a former editor for writing negative things about the company on Facebook. Last year, it filed a lawsuit against a blog that was covering its financial tailspin for "intentional interference with contractual relations" and "prospective advantage," and then dropped it.

Starting Fresh

And it's bilked some of its vendors. A writer claimed that a year later he was still owed $175. A freelance photographer for The Advocate sued Here Media in 2010, after he wasn't paid for more than nine months. Xerox sued that same year; PlanetOut leased a bunch of its equipment, failed to pay up for four years, and owed $290,000, plus interest.

Is Moving Out's operations to a separate company a way to rebuild some burned bridges? Hicklin, a well-respected editor and charming voice of the gay community, denies that. But he did say that the new arrangement would give him "more ownership over the production, in the way we allocate our own resources."

The era when everyone clocks in at 9 a.m. for 40 years at the same company, and then retires with a full pension, is already long gone. Many members of the "creative class" prefer to do their work on their own schedule, with one hand prepping a baby's bottle, or nursing a Starbucks latte. Others, like the staff of Out, find that they suddenly don't have a choice. Some find this brave new world liberating. For others, it's terrifying.

"I've never been in a position where I've been laid off from a job," said Hicklin, "or been in a position when an entire department's laid off. That experience can be traumatic, I'm not trying to mitigate that. But I think it's something that will be fulfilling in the long run."

"But is it about taking control of Out's finances from Here?" we asked, one last time. "It's about taking control of my destiny," Hicklin replied. "Doesn't everyone want to do that?"